Article No. 106

Business Practice Findings, by James Larsen, Ph.D.

How to Stop the Bleeding

Researchers study business turnarounds and reveal the secrets of the executives in charge.

In our worst business nightmares, everything goes wrong.
All our decisions are bad, every turn in our fortunes is
downward, and loses in one month seem modest compared to
following months. This is when business failure looms its
ugly head, and executives get desperate, willing to try
anything. And it is in response to this need that a new
management specialty has arisen, the turnaround change agent.
These executives save failing companies, coming in like
Superman to effect a rapid rescue, and then moving on to
other struggling companies. They have a body of literature
to guide them and a professional association to represent
them, the Turnaround Management Association.

This management specialty was the object of a study led by
Achilles Armenakis, of Auburn University, who pursued a very
simple idea: turnaround executives have learned something
about introducing painful changes the rest of us would profit
by knowing. One hundred and forty-five of these specialized
executives agreed to answer Armenakisí questions and
share their insights. Here's what they learned.

A successful turnaround follows 4 steps: It begins when
an awareness develops among employees that something is very
wrong. This leads to a recognition that a change is coming.
These 2 steps create a readiness for the third step when
changes are actually made. The final step finds painful
changes being accepted as permanent. It's a curing process
that prevents a regression to old ways when conditions
improve. Each step begins with a trigger, an action of the
executive that signals a new, unfamiliar period ahead; and
these triggers were a special focus of Armenakisí study.

Change alarms people, and when conditions are seriously
wrong, they know their jobs may be lost. Their families'
welfare is threatened, and they're afraid. Failing companies
are also vulnerable, and it is only through the extraordinary
effort, sacrifice, and loyalty of employees that a turnaround
can occur.

The leadership challenge to make needed changes while
simultaneously stimulating people to great effort, is
daunting, making leading in good times pale in comparison.
But it is the only way changes have a chance to work. What's
needed is emotional communication, talking to people's
hearts, and Armenakis and his team learned how these
executives do it.

Nearly all use a metaphor as a theme in explaining what's
wrong and what must be done. Half use a medical metaphor,
characterizing their companies as bleeding patients and
themselves as physicians, while exhorting everyone to help
stop the bleeding. A quarter use an athletic team metaphor,
and the rest use either a ship at sea or a military metaphor.

Nearly all executives also take actions high in symbolic
value. For example, 76% eliminate perks for themselves and
other managers, thereby immediately improving the balance
sheet while alerting people that sacrifices will be expected
from everyone. Most also give special attention to
individuals and departments in order to recognize achieving
important goals, to encourage reluctant people to join in the
change effort, and to help them accept changes as permanent.
For example, an executive may reward beating a deadline to
signal a shift toward nimbleness to replace a methodic,
deliberate pace that dogged them in the past. Other popular
symbols include recognizing turnaround survivors as the
"chosen few,"
and remodeling highly visible parts of the building. Firing
a key manager as a
sacrificial lamb
was frequently used by a small number of these executives;
but overall, it was not a popular choice.

Like any powerful tool, we should have a sobering respect
for the power of metaphors and symbols to affect people and
move them to action. Consider, for example, the impact of
the American flag when veterans recall the sacrifice,
suffering, and freedoms won in past conflicts; or religious
symbols like the Cross or the Star of David. It is
appropriate to use emotional symbols when they are needed,
but it's a mistake to use them when conditions don't warrant
their use. Doing so can spoil their impact when you really
need them.

Reference:
Armenakis, Achilles, William Fredenberger, Linda Cherones,
Hubert Field, William Giles, and William Holey (1995).
Symbolic Actions Used By Business Turnaround Change Agents.
Best Papers Proceedings,
Fifty-fifth annual meeting of the Academy of Management,
Vancouver, British Columbia, Canada, August 6-9, 1995, 229-233. www.businesspsych.org